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Four Contracts Every Business Needs and One You Should Avoid

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Contracts are an essential part of any business. They protect your venture against all kinds of risks and keep operations smooth and streamlined. Here are four contracts most businesses can't do without and one that a lot of business owners think they want but shouldn't use.

  • Nondisclosure Agreements. Almost every business has valuable proprietary information that needs protecting from public disclosure. It could be a recipe, computer code, the specifications for a new invention, or even something as simple as a customer list or pricing model. A simple nondisclosure agreement is a key step to keeping "need to know" information from being made public.
  • IP Assignments. If you have owners, employees, or contractors who are creating intellectual property for your business (e.g., logos, copy, computer code, etc.) they need to assign the IP to your company so it becomes an asset that increases the value of the venture.
  • Promissory Notes. The easiest way to codify a loan to the business is through a promissory note. Short, sweet, and legally enforceable.
  • Website Terms of Service/Privacy Policies. These are binding contracts. You can accomplish a lot with well-drafted TOS: Make collecting from nonpaying customers easier, require all disputes to be resolved in the closest courthouse, disclaim warranties, protect your company from liability if there's a hack or a security breach, and much more.
  • So what's the contract to avoid? Noncompete agreements are often unenforceable as a matter of public policy. Even where permitted it's difficult for most judges to deprive someone of her livelihood so your company can make a buck. Often you can achieve the goals of a noncompete with solid intellectual property assignments and nondisclosure agreements.
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